Economic growth has not “decoupled” from CO2 emissions

Loren Kaye

President of the California Foundation for Commerce and Education


With the enactment of new climate change regulation through 2030, California leaders are closing ranks to make the economic and business case for more mandates.

The new requirement will reduce total greenhouse gas (GHG) emissions by at least 40 percent below 2020 emissions. On a per capita basis, that’s a reduction of one-half of GHG emissions from today’s levels in 14 years.

Achieving this goal will be challenging in the best of circumstances. After all, much of the relatively easy and least controversial policy choices and behavioral changes have already been baked into the current trajectory to meet the 2020 mandate:

  • Utilities are providing at least one-third of their generation from renewable power sources. The rest is provided by clean hydro, nuclear, and the cleanest of all fossil fuels, natural gas.
  • National automobile fuel economy standards have been ratcheted up.
  • An economy-wide cap-and-trade system has sent market signals to about 80 percent of GHG emission sources.

Achieving the next tranche of reductions will require much more aggressive and expensive measures, including greater penetration of non-fossil electricity generation, more aggressive adoption of electric vehicles, much less driving by Californians, and continuing dramatic restructuring of the California economy.

Reaching the new goals may be achievable, but it certainly won’t be painless. So it’s baffling that state leaders and pundits now suggest that controlling carbon emissions has become “decoupled” from economic growth. That is, California (and by implication the national and the global economy) can enjoy robust economic growth while sharply reducing GHGs.

Speaking in China, Senate President Kevin de Leon in 2015 announced that California has “established a policy framework that has enabled us to decouple GDP from GHGs.”

“As California has driven emissions down, its economy has taken off… showing what decoupled carbon emissions and economic growth look like,” crows Chris Busch, director of research at Energy Innovation.

And California Air Resources Board chairman Mary D. Nichols, perhaps closer to an explanation, declared, “No longer must economic growth result in smokestacks and pollution.”

California has indeed enjoyed robust economic growth since the end of the Great Recession – driven in large part by industries that no longer feature “smokestacks.” But this isn’t a new trend, and well predates even our earliest climate change legislation.

For decades, the California economy has become more services-based. We are still the largest manufacturing state, but our economic growth is more behind a desk than on a factory floor. If manufacturing held the same position in the economy today as it did in 1997, we would be pumping out $78 billion more in economic activity from that sector.

Imagine how much more greenhouse gas emissions we would produce with $78 billion more in manufacturing output.

This is not to advocate for the shrinking manufacturing sector. Far from it: those missing skilled, middle class jobs have created a bare patch in our jobs fabric. But it does demonstrate the consequence of greenhouse gas reduction, and that our society pays a price as we shift from an energy intensive to a knowledge intensive economy.

California’s recent job growth has been exemplary, but growth has been spread unevenly. The state created 63,000 jobs last month, but actually lost ground in manufacturing. More than 40 percent of the new jobs were created in government, while another 30 percent were created in the well-paid business services and information sectors.

Professor Robert Stavins, of the Harvard Center on Climate Agreements, argues that talk of “decoupling per se could lead to a misguided laissez-faire attitude about the path of CO2 emissions. Being honest and accurate about the links between (desirable) economic growth and (desirable) CO2 emissions reductions puts our focus and emphasis where it ought to be: finding better ways to have both.”

California’s political leadership should take the opportunity now to carefully understand the economic, sectoral and geographic implications of further GHG reductions to help guide policies to achieve the new goals. Instead of waving away any connection between economic growth and energy use, leaders should explore how public policies can best optimize the two.

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